Comment On The ZRA January to June 2022 Revenue Performance
By Correspondent
A report from the Zambia Revenue Authority providing sketchy numbers on how the Authority performed in the last 6 months. The report showed an overall positive variance over the period target.
It took me over one hour to understand the report and exactly what the Zambian government through ZRA was trying to communicate to the Zambian people, IMF, lenders and the International Community.
As I went through the report over and over which largely comprised of tables, I realized that the major objective of the report was to show that tax revenues were performing above target when in fact that was not the case. I will illustrate why.
Firstly, ALL the six tables compared revenue performance in 2022 to 2021. In short revenue growth.
This would have been two tables; not six. One table should have been on actual revenue growth and another on revenue growth per economic sector.
Please note that the economic parameters used to determine revenue targets in 2022 are different from the fiscal regime in 2021.
Therefore measuring revenue performance cannot be based solely on comparing two different fiscal regimes. In some cases even tax rates are different.
The best way to measure revenue performance is to compare actual collections of each tax type to actual targets in the period under consideration in this case January to June 2022.
The Zambian government through ZRA DELIBERATELY and dubiously failed to give this report because according to some reliable sources ALL tax types except Provisional Income Tax from the mines are grossly underperforming.
The reason why mining income tax is over performing is because of high LME prices for minerals and high exchange rate though it is relatively stable at K17 to 1 USD on average for the period.
Though Mineral Royalty Tax is also over-performing, you cannot count it because the current government made it a deductible tax in 2022.
Meaning that Mining companies will deduct ALL the mineral tax they are paying now when they pay their final Income Tax.
So if you do that calculation now and deduct K6 billion Mineral Royalty Tax that has been so far been collected between January to June 2022, ZRA is below target by K4 billion.
More importantly, ZRA refunded K8 billion in the last six months giving an average of K1.3 billion per month.
According to economic reports and assessments done by both ZRA and the IMF, full VAT refunds for Zambia are around K3.4 billion per month excluding arears.
This means that the Zambian government is accumulating not less that K2 billion in unpaid VAT refund every month or K12 billion in the last six months.
This is adding to an already bloated domestic debt.
So when you adjust Mineral Royalty Tax from mining Income Tax and factor in full refunds, you can safely conclude that the real tax revenue underperformance by ZRA for the period January 2022 to June 2022 is negative K14 billion and not the positive K2 billion falsely reported.
This level of poor tax revenue collections means a lot of things for the Zambian economy.
Firstly, financing government operations will increasing become difficult, loan repayment will be a struggle, lenders confidence will diminish and the rating of the Zambian economy will further deteriorate.
Some sources have indicated that the Zambian government has had to borrow money from NAPSA through BOZ government bonds to pay salaries to civil servants.
If this is true then we must do something about domestic revenue mobilization both tax and non-tax revenue.
If I were the Minister of Finance, I would request the following from ZRA and my economic team:
- What was the performance of each tax type against target?
- Why are so many taxes not performing? What are the options to improve performance? Are we dealing with smuggling and tax fraud effectively?
- What is the full level of VAT refunds and what is the strategy to stop accumulation of arears? Are there options for reform of either the Law, regulations or VAT procedures?
- What is the total VAT arears sitting in ZRA?
- Should I even collect Mineral Royalty Tax just to show performance when by Law its not a final tax?
Hiding figures through “creative reporting” is not a solution because you will not hide failure of government to provide public goods and services.
Let us all work together and find a solution to our failing revenue performance. Not just tax revenue but all the revenues at all levels of government.
For this advice which is purely in national interest, I expect my government to take it with humility and understanding.
It is neither unfair criticism nor disrespect. I am genuinely worried about falsified reporting about government performance when the evidence is obvious.